United States: Pension-Related Reduction In Redundancy Compensation Provided By A Social Plan: Discrimination On Grounds Of Disability But No Age Discrimination

Pursuant to a decision of the European Court of Justice ("ECJ") in a preliminary ruling upon reference of the labor court Munich (Odar vs. Baxter, ref. C-152/11, decision of 6 December 2012), a formula in a social plan which reduces the redundancy pay for employees who are close to qualifying for statutory retirement pensions, including early pensions with reductions, does not constitute age discrimination. However, such formula may constitute a discrimination based on disability in violation of the provisions of the Equal Treatment Framework Directive (2000/78/EC).

Note that a reference for a preliminary ruling allows the courts of the Member States to refer questions to the ECJ about the interpretation of European Union law or the validity of a European Union act. The ECJ does not decide the dispute itself. It is for the national court to dispose of the case in accordance with the ECJ's decision, which is similarly binding on other national courts before which a similar issue is raised.

Introduction. The EU Directive 2000/78 on equal treatment in employment was transposed into German law by the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz–"AGG"). Pursuant to the AGG, redundancy compensation plans (so-called "social plan") can provide for different amounts of compensation payments if the compensation scheme is graduated according to age or length of service. The AGG further allows that the social plan excludes from the benefits it provides employees who are deemed as financially secure because they are entitled to a statutory pension, even though they have been receiving unemployment benefits prior to that.

Case. Baxter Deutschland GmbH ("Baxter") entered into a social plan with its works council, providing for compensation payments for employees suffering from a redundancy. The compensation was calculated according to a standard formula, taking into account the employees' length of service and age.

For employees older than 54 years old, an alternative calculation applied which did not take into account their length of service, but on the contrary, took into account the number of months which existed before being able to receive, at the earliest possible time, any kind of pension income whatever its amount.

The definition also covered any reduced pension income due to an early beginning of retirement (i.e., early retirement due to disability). In the present case, the employee, Mr. Odar, was 58 years old and recognized as being severely disabled. He had been employed for almost 30 years with Baxter when Baxter terminated his employment relationship. Under the German retirement pension scheme, Mr. Odar would have received an ordinary old-age pension at the age of age 65 but, being severely disabled, could claim an early retirement pension at the age of 60 which would be of a reduced amount. Pursuant to the special calculation formula from the social plan, Baxter paid to Mr. Odar a reduced compensation (as Mr. Odar was older than 54 years and could benefit from a early reduced pension income due to disability). Mr. Odar brought an action before the labor court of Munich requesting that Baxter be ordered to pay him additional compensation equal to €272,000, corresponding to the difference between the compensation he effectively received and the amount of compensation he would have received had he been not older than 54 years of age and the standard formula had been applied to him. He argued that the reduced compensation provided in the social plan was, in fact, discriminating on grounds of age and disability.

Decision of the ECJ. The Baxter social plan provides for a calculation method taking into account the employees' age. Such difference in treatment on the basis of age is justified pursuant to Directive 2000/78. Indeed, since older employees mandatorily receive a statutory retirement pension as of age 65, the social partners can rightfully decide to reduce in the social plans they negotiate the redundancy compensation payment for them.

However, the ECJ holds that the prohibition of discrimination on grounds of disability precludes the implementation of the social plan's provisions which take into account the possibility of receiving an early retirement pension on grounds of disability (alternative special calculation formula). Pursuant to the Baxter social plan, severely disabled employees are paid a redundancy compensation which is lower than the amount paid to a nondisabled employee of the same age. This difference of treatment cannot be justified as it constitutes a discrimination based on disability.

Comment. The reduction of redundancy compensation for employees close to old-age retirement does not constitute age discrimination. In that aspect, the ECJ follows the German Federal Labor Court, which has always accepted such difference in treatment. It is justified by the objective to grant compensation to former employees for the future, whilst taking into account the need to achieve a fair distribution of the company's limited financial resources in the context of a social plan. Moreover, the aim of preventing persons who are not seeking new employment, but who will receive a replacement income in the form of a retirement pension, from claiming a compensation upon termination must be considered as legitimate. However, the ECJ considers that a further reduction of redundancy compensation for employees eligible for early retirement due to disability constitutes a discrimination based on disability. Indeed, these rules have an excessive adverse effect on the legitimate interests of severely disabled employees and on the social policy objectives pursued by such early compensation. In the future, the social partners negotiating a social plan will have to exclude the parameter "early retirement pension" from alternative calculation formulas for redundancy compensation, to prevent discrimination due to disability. In addition, they will also have to exclude the employees' gender or face the possibility of being considered to discriminate due to gender.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions